Finance - Tech Analysis

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Is anybody else here into technical analysis?

I'm not entirely sure it's simply a matter of pareidolia (the human tendency to see patterns/meaning in inherently patternless/meaningless data). For instance, there exist these things called the Fibonacci patterns; any mathematician would know that the Fib sequence is just a numerical sequence. Yes, it's pretty in nature and all that, but there's really nothing special about it.

However, as any trader would know: trading is this strange world where things are true simply because the majority of the market believes it is true (this isn't a fact, and not only because of the nebulous nature of a financial fact) - just a very useful truism). If the market believes that derivatives should be priced according to chicken entrails, then so be it...

Thoughts?

Please keep your moral judgements on finance out of this thread. Post them in the PPR forum if you like; this is not the right place.

Errrm.....I like the sound of your post because I like numbers and sequences etc. I have worked in IT in finance before.

I agree what you say; if the majority in the market thought tulips were worth investing in then the value of tulips would rocket for a time until the market decided they weren't bothering with then they would drop. But I am not sure what you are suggesting. Are you trying to say that trends in finance are groundless? That it is governed by what people think?

I think the value of things depends on current environmental and political climates. The value of the british banks bailed out in 2008 has nosedived, so the public own some valueless financial organisations. If the government announced tomorrow they were appointing some financial hot head to manage them the share value may sky rocket.

When I look at the trends in finance I am often reminded of watching a group of pigeons pecking around the park. If you throw a handful of bread into the middle of them they all rush to it....in finance its similar, the more demand the more likely demand will increase....

They are my thoughts anyway.

Not entirely groundless. There is some common sense notion (for an arbitrary definition of "common sense") of, say, what something "should" be worth. A banana, for instance: the market can say how much it's worth because it serves a tangible function, i.e. food, although this may relate more to price elasticity than the actual price itself. LNKD(ticker symbol for linkedin): not so much.

Also, broad trends are different, and played differently, from shorter-time scale trends:


Broad (month-year/long) trend.



Short (intra-day) trend.

OK. So what do you want to discuss here? Do you want to investigate how trends change or come about? Or whether there is a true pattern in trend analysis?

Regarding the fib sequence, it is just a sequence but it has the particular property that each number is the result of adding the previous two together. So that makes it more significant than a random sequence where no recognised pattern is seen.

Are you thinking that traders have these kind of ideas? Like the fib sequence?

It correctly models population increases and it correctly models the distribution of petals and seeds in plants. Nothing special????? Fibonocci came up with it to describe the increase of population of a bunch of bunny rabbits.

ruveyn

The only reason why we think it's special is because we're humans...humans have a natural tendency to want to assign a special meaning to symmetric or patterned relationships, in a flood of meaningless data.

Like statisticians use the normal distribution very frequently - but it's just one distribution out of hundreds. Nothing special about it.

Furthermore - the uses of the Fibo spiral has some empirical backing, cos we really do see such arrangements in sunflowers, as you've mentioned. But in finance they take the concept of "spiral" rather superficially. Somebody thought: hey, it appears that buy/sell trends have a spiralling/self-amplifying effect, so it must be accurately modeled using the fibo spiral OMG!!!111

I am not sure if you are asking a philosophical or practical question, but from a practical perspective I attempt to forward-guess the patterns that traders will see. Sentiment is a huge part of market movement, and guessing that sentiment is low (and prices likely to rise), or that sentiment on a particular stock will change, is one strategy I use. If you take a stock like Olympus right now (which I have not taken a position on), the sentiment is probably wrong, but I can not find sufficient data to ground a guess. On the other hand, Western Digital (which I did buy) was grossly undervalued after the Thai flooding, due to misunderstandings of how much of WD's business had been affected.

Practical. always practical. I don't know anything about philosophy, for the same reason that a goldfish doesn't know anything about quantum physics.

Hmmm...interesting. So far I'm trying out forecasting the next price point, or next 2 or 3 price points, but accuracy drops off so rapidly that trying to forecast anything very far into the future is pointless...but I never thought of attempting to forecast a pattern.

what on earth is up with LNKD??!

I would take forecasts of a week into the future on a highly volatile movement, like news-driven bad sentiment, but more generally of a month to a year ahead. There are stocks which - all history staying equal - will almost certainly rise in value. You could rank the entire stock market according to expected rise or fall, and invest in the top stocks on that list, and make a profit even in a falling market.

Incidentally, whatever happened to the day-trader? The economic conditions are perfect with decent reversing swings and fairly predictable long-term trends.